Understanding its terms can be confusing if this is your first year of filing your tax return. To help prevent you from making an error when filing, let’s get down to the basics and discuss filing statuses.
Determining which filing status you belong in is crucial since it determines your tax bracket and bill to pay. So if you’re still unsure which category you belong to, we’ll discuss each below.
What are filing statuses?
A filing status is a category you use to determine your tax rate, filing requirements, standard deductions, and eligibility for tax credits. It’s often related to your marital status and can be broken into 5 categories:
- Married filing jointly
- Married filing separately
- Head of household
- Qualifying widow(er) with dependent child
Other factors, like your job or number of dependents, can also qualify you for more than one filing status. So you should pick the one that’s the most applicable to you or get advice from a professional accountant to help you. It’s always best to be honest about your status, so you won’t get charged with penalties for being fraudulent.
What is the ‘Single’ filing status?
The Single filing status is for unmarried taxpayers, a registered domestic partner, divorced, or legally separated according to state law by the end of the tax year. You can also belong in this category if you don’t qualify for the other filing statuses.
If you file under a single status, you might find several perks, including a less complicated tax filing process since you must complete less paperwork and requirements. You won’t also be responsible for any tax liabilities associated with your partner’s income.
Although one downside is that you’ll have a lower tax threshold and standard deduction compared to the other filing statuses.
What is the ‘Married filing jointly’ status?
The Married filing jointly status applies to married individuals by the end of the tax year. Note that the IRS still considers you married if your spouse dies within the same tax year.
When filing your tax return, you report your combined income, credits, deductions, and exemptions. This usually results in a bigger tax refund or a lower tax liability – especially if one spouse has a higher income.
But if both of you work and your income and itemized deduction is significant and unequal, you might be better off filing your taxes separately to avoid getting a higher tax rate.
What is the ‘Married filing separately’ status?
You may qualify to file under the Married filing separately status if you’re married but choose to file your taxes separately from your spouse. This can be beneficial if your partner has significant medical expenses or itemized deductions. You can also take advantage of this status if you are high-earners and want to keep your tax rates low.
Although the downside is that you won’t be able to claim several tax credits available for joint filers, such as earned income credits, child tax credits, adoption credits, and student loan interest deductions.
What is the ‘Head of Household’ filing status?
The Head of Household filing status applies to you if you’re unmarried, pay at least 50% of the cost of maintaining a home, and live with other qualifying members for more than six months. This filing status can benefit you with a lower tax rate and bigger tax deductions, but you must ensure your qualifying members fit the rules.
Qualifying family members include a dependent child, grandchild, grandparent, sibling, or any individual you can claim as an exemption and are related to you.
The IRS can also consider you unmarried if your spouse hasn’t lived in the same household as you for the last six months – not including temporary absences, such as school.
What is the ‘Qualifying widow(er) with dependent child’ filing status?
The Qualifying widow(er) with dependent child filing status is eligible for individuals who lost their spouse in the same tax year and are taking care of a dependent child.
You can file under this status two years after your spouse passes away to maintain the same standard deduction as the married filing jointly status – which can get you a higher standard deduction and tax bracket. But you cannot remarry for two years and must claim at least one qualifying dependent for the tax period to be eligible for this status.
Need help with determining your best filing status?
If you qualify for multiple filing statuses, get advice from Lear & Pannepacker. They have a team of experienced CPAs and accountants that will help you determine which filing status you should belong to. They also offer other financial services, such as bookkeeping, auditing, business advisory, and financial planning. If you have questions or inquiries, feel free to contact them now.